By Elijah Joseph C. Tubayan and Charmaine A. Tadalan, September 5 2018; Business World
Image Credit to Ibon.org
TWO TAX REFORMS — one that cuts the corporate income tax rate and removes redundant fiscal incentives, and another that provides for a general amnesty — were approved at different levels in the House of Representatives on Tuesday.
The House on Tuesday approved on second reading the second tax reform package that will cut corporate income tax (CIT) rates and streamline fiscal incentives in order to plug foregone revenues amounting to hundreds of billions of pesos each year.
House Bill No. 8083, Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill, is the second of up to five planned packages designed to shift the burden more on those who can afford to pay bigger levies while yielding additional revenues to help finance an infrastructure development program that will need more than P8 trillion until 2022, when President Rodrigo R. Duterte ends his six-year term.
The measure seeks to trim the CIT rate to 20% gradually from 30% currently — the highest in Southeast Asia — by two percentage points every other year starting 2021.
The bill also authorizes the President to accelerate CIT reduction in the face of increased collections from the rationalization of the fiscal incentives, as certified by the Finance chief.
Besides removing perks deemed redundant and among other provisions, the measure also caps income tax holidays at five to seven years, depending on investments’ location and merits.
Tuesday also saw the House Ways and Means committee approve a general tax amnesty program that includes the estate tax amnesty that cleared the plenary last year.
“We approved today the amnesty package, which affords our taxpayers an amnesty for their estate tax, a general tax amnesty, and even for delinquencies,” committee chairman Quirino Rep. Dakila Carlo E. Cua told reporters after the hearing.
The committee will then submit the bill for plenary approval.
Among others, the bill imposes an amnesty charge equivalent to a portion of outstanding unpaid taxes in exchange for immunity from civil, criminal and administrative penalties.
Excluded are delinquencies involved in complaints of the Presidential Commission on Good Government, unlawfully acquired wealth under the Anti-Graft and Corrupt Practices Act, violations of the Anti-Money Laundering Law, pending criminal cases for tax evasion, as well as tax cases subject to final and executory judgment of courts.
The bill also authorizes the government to examine concerned taxpayers’ books of account to verify the accuracy of declared amounts and provides for the automatic exchange of tax information with foreign authorities.
The bill’s estate tax amnesty provision — which was actually approved as a separate bill by the House in February last year but was included in the current measure — imposes a flat rate of six percent on the decedent’s net estate.
A counterpart bill awaits approval at the Senate Ways and Means committee. By law, tax measures should emanate from the House, although the Senate can hold parallel hearings in order to expedite enactment of priority bills.
The general amnesty provision covers all national internal revenue taxes except estate, value added tax and estate taxes collected by the Bureau of Customs, as well as local government taxes. That provision imposes a four percent amnesty rate if it is paid within six months from the amnesty offer and five percent after that period but only for up to one year.
The committee adopted the use of incremental assets as basis for computation of payments of businesses that apply for amnesty. Incremental assets are defined as the difference of a taxpayer’s total assets as of end-2017 and total assets declared in the latest financial statements submitted for amnesty purposes, provided that Bureau of Internal Revenue verification shows such incremental assets are understated by at least 30%.
The Department of Finance (DoF)had batted for such computation to be based on total assets, arguing that this would be easier to administer and, hence, encourage small taxpayers to participate.
“They end up being excluded because they have no undeclared assets. It would be difficult for individuals. They don’t have to submit any list anywhere. That means they would have to come up with that list,” Finance Undersecretary Antonette C. Tionko said during the hearing.
“In the past amnesties, the provisions were comprehensive, but they couldn’t implement it. Those are the things you want to avoid. We also want to cover individuals. Just to make it as easy as possible, use total assets.”
However, Luis Jose P. Ferrer, tax head of SGV & Co., said that the total assets method would discourage large taxpayers from participation as the amnesty would include even assets for which proper taxes have been paid.
“For those regularly paying taxes — if we base the amnesty on the total assets, it would cover all assets that have been taxed already in the previous years — effectively excluding them from the amnesty because it would be prohibitive to pay the taxes again. It’s not fair especially for the big companies; they will not avail of this,” he said at the hearing.
For those assessed with tax shortfalls, the bill offers an amnesty of 50-100% of the basic tax depending on the nature of the delinquency.
While the DoF has yet to come up with a computation of potential revenues from the planned amnesty offer, Mr. Cua said that the government could raise P16 billion from delinquencies that have become final and executory alone, but would forgo the collection of some P197.57 billion.
The committee removed the minimum amnesty payment of P50,000-P1 million for taxpayers without incremental assets to declare, as “it runs counter to the idea of an amnesty… it becomes a misnomer if you don’t have incremental assets then there’s no basis of imposition,” Iloilo 3rd District Rep. Arthur R. Defensor, Jr. explained at the hearing.
It also removed the amnesty on customs duties and local business taxes, citing lack of required data.
“We have not fully established the premise based on sufficient discussion,” said Mr. Defensor, even as Mr. Cua moved to “consider a separate bill as endorsed by the DoF.”
“The basis, the calculation is totally different of what we’re talking about. If it were to be done in a separate bill, that would be acceptable,” said DoF’s Ms. Tionko.
At the same time, the committee moved to include a provision allowing local government units (LGUs) to conduct their own one-time amnesty program on unpaid local real property taxes. “A possible option for us to do is to revise it in a way the bill can empower the LGUs, despite not having a calamity, and… grant them the power to have an amnesty, one-time,” Mr. Cua said.
Moreover, the bill also mandates the creation of a tax database for those that availed of the program for closer monitoring of compliance after amnesty availment.
The bill is part of “Package 1B” proposed by the Finance department, consisting of provisions initially included in Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion law but which were removed. The package also includes a proposed increase in motor vehicle user charge, currently awaiting approval of the House Committee on Public Works and Highways.
RA 10963 cut personal income tax rates but covered resulting foregone revenues by raising or adding taxes on a host of goods and services.